Cash Flow Problems…Time to Collect

Financing your business can be a tedious, time-consuming, and frustrating task. Banks might be turning you down. Angel investors are not willing to invest. Your company is in need of cash flow and nobody is willing to offer it. But have you looked at your accounts receivable yet? Outside financing may not even be needed if you are exercising good cash flow management.

Collecting your accounts receivable will give you the cash flow you need. Instead of asking for funding and acquiring unnecessary debt you should improve your accounts receivable collections. Don’t go asking for a $10,000 loan when you still have $12,000 in accounts receivable at the end of the year. The banker will decline your loan application and you will have spent all that time preparing for nothing. When you have that much in accounts receivable, it’s time to start collecting.

How to Collect Your Accounts Receivable

There are several ways you can collect you accounts receivable quicker. It all depends on your current cash flow management. The following are some suggestions:

Collection Period: If your collection period is 43 days, it is advisable to decrease it. A 30-35 day collection period will help your cash flow issues.

Bill Statement Management: Once an order has been placed, send the bill out right away. If possible, collect up-front.

Follow-Up: Keep in contact with your customers to make sure they have received their statements.

Payment Options: Make it easier for your customers to pay you. You can set up a payment plan with them.

Incentives: Offering an incentive will give your customers more of a reason to pay early or on-time. The incentive can be as simple as a small discount.

Watch New Sales: You should keep an eye on any new accounts. A good way to determine if they pay their bills on time is to get a credit report.

Dealing with Overdue Accounts

The fact is that 100% of your accounts might not be paying you. You have to deal with it in a organized and professional manner. Don’t harass your customers for money, but let them know that if they do not pay you will have to take more serious actions. Here is what you can do with accounts that are long overdue:

Pre-collect notice: After you have sent several billing statements and received no payment, it’s time to take more serious actions. First you need to notify your customer(s) that if payment is not received you will be reporting them to a collection agency.

Collection Agencies: If you still have not received a payment, report it to a collections agency. This agency will work to get your funds paid to you. Keep in mind that collection agencies is a service that you have to pay for. Rates vary from agency to agency.

Court: The last resort is to take the customer to court to resolve payment disputes. You need to decide if this is something you should do as it costs money to take someone to court.

While you may be tempted to ask for outside funding, the fact is that if you don’t need it – dont’ borrow it. If you have a lot of accounts receivable, it is better to take the time to collect the money rather than being the one who owes money. Further Reading: